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IRS Provides More Options for Unused Funds in Health FSAs and DCAPs

unused funds

1.5 minute read

The new IRS guidance includes more options when it comes to unused funds in an employee’s health flexible spending accounts (FSAs) and dependent care assistance programs (DCAPs). The options include increasing the FSA carryover limit and an extended period for incurring health FSA or DCAP expenses.

IRS Notice 2020-29 states that employers can also allow employees to apply unused amounts remaining in a health FSA or a DCAP at the end of a plan year ending in 2020 (or grace period ending in 2020) to pay or reimburse expenses incurred through December 31, 2020. This applies to all health FSAs including those that allow carryovers.

The IRS has also relaxed the mid-year election change rules for health FSAs and DCAPs for 2020 to allow participants to revoke their elections, make new elections, or decrease or increase existing elections.

IRS Notice 2020-33 states that the health FSA carryover limit for unused funds at the end of the plan year has increased from $500 to $550. This change is effective for plan years beginning in 2020 (and reflects the maximum amount that may be carried over to the immediately following plan year beginning in 2021).

Employers who implement these changes must adopt an amendment for their Section 125 cafeteria plans by December 31, 2021. Employees must be notified of the changes.

Download the bulletin for more details.

 

Additional Resource

FAQs Medical Savings Accounts

Click to Download the 2020 IRS Contribution Limits Infosheet

This blog is intended to be a compilation of information and resources pulled from federal, state and local agencies. This is not intended to be legal advice. For up to the minute information and guidance on COVID-19, please follow the guidelines of the Centers for Disease Control and Prevention (CDC) and your local health organizations.

 

National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.

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Adam Kuck

Adam Kuck

The first things you will notice about Adam Kuck are how personable and organized he is. As your Account Representative, Adam will be on hand to walk you through your group's plans, conduct employee and retiree meetings, and be your advocate when a problem arises. Adam first joined National Insurance Services (NIS) in 2013 as an intern in the Marketing Department. He enjoyed NIS’ company culture and team values so much that he later applied and was hired as a Retirement Income Account Representative for NIS and MidAmerica Administrative & Retirement Solutions. Adam specializes in Health Reimbursement Arrangements (HRAs), Flexible Spending Accounts (FSAs), and 403(b) Special Pay Plans (SPP) for clients in Minnesota, Pennsylvania, and Oklahoma. He is a licensed Health and Life insurance agent and a registered securities representative with his Series 6 and 63 licenses.